Jul 13, 2016 | 09:15 GMT

7 mins read

Politically Adrift in Australia

Politically Adrift in Australia
(PETER PARKS/AFP/Getty Images)

Australia's political landscape is fracturing, leaving the country with another weak government. Prime Minister Malcolm Turnbull's ruling coalition eked out a victory in the country's July 2 federal elections, but it will be even less capable of implementing its agenda going forward than it was over the past year. Amid a surge of protectionist and anti-establishment sentiment, Australians voted against the country's two major parties in record numbers, much to the benefit of small parties and independent candidates who will hold outsize power in the Senate. In a country already struggling to find political stability, parliamentary gridlock and policymaking paralysis are likely to continue for at least the rest of the year.

Turnbull, who in September 2015 became the country's third prime minister in four years, called early elections after passing a reform that makes it harder for smaller parties to enter Parliament through vote-sharing deals. In Turnbull's view, Australia's past decade of political gridlock stems in part from the power that small parties and independent candidates hold over legislation, particularly in the Senate, which has largely thwarted his coalition's agenda despite its healthy majority in the House of Representatives. He hoped that dissolving the House and the Senate would bring about a stable majority that would pave the way for a number of overdue reforms.

But the gamble backfired. Several minor parties and independent candidates triumphed anyway, while Turnbull's Liberal-National coalition lost 14 seats and the solid majority it had enjoyed in the House. Rather than being reined in, the small parties are now positioned to play kingmaker and have even greater say over policymaking in the next government.

Voter Anxieties

The results reflect, in part, growing unease among Australia's voters about the country's vulnerabilities to global forces such as free trade and migration. In general, the international system works in the favor of a geographically isolated country such as Australia, founded on immigration and heavily reliant on steady flows of trade and capital — and on the U.S.-led security order in the Pacific to protect them. Australia has now gone 24 years without a recession, and it weathered the 2011-12 global financial crisis relatively well, thanks in large part to high commodity prices. Today, despite the commodity collapse, the country's economy is still growing at an annual rate of around 3 percent, and unemployment remains below 6 percent.

Turnbull, a former venture capitalist, has generally taken an enthusiastic tone on globalization and multiculturalism, even when the final weeks of the campaign were rocked by the Brexit. His campaign platform centered on cutting corporate taxes and instituting labor reform. But he is facing a rise in protectionist and anti-establishment political sentiments, both inside his party and out, not unlike those seen recently in Europe and the United States — particularly in regions hit hard by the collapse of local manufacturing and the drop in commodities prices.

The Labor Party, led by ex-union leader Bill Shorten, takes a slightly warier view of trade, and it gained 14 seats in the House, but it received just over 35 percent of the popular vote. More notable was the performance of numerous independent candidates and small parties that tapped into anxieties about free trade and globalization. Almost a quarter of votes were cast against the two major parties, and as many as 10 senators are expected to be independents or members of small parties.

The ruling coalition lost nearly 10 percent of the vote it won in South Australia in 2013, mostly to the benefit of an upstart bloc led by Adelaide-based Sen. Nick Xenophon. His trade-skeptic party received around 21 percent of the vote in the state, earning it a seat in the House for the first time, plus as many as three more in the Senate. Meanwhile, the anti-immigration, anti-trade One Nation party improved by nearly 4 percent.

These parties will have strongest representation in the Senate, the structure of which will give them outsize influence over legislation. Last year, for instance, Xenophon led the charge to derail a $38 billion deal to buy 12 Japanese submarines in favor of an agreement with France that will ensure that the vessels are built in Adelaide.

Policy Implications

Because the next government will likely be a weak one tasked with accommodating a fracturing political landscape, its legislative priorities will be unpredictable. Major changes in the direction of Australia's policymaking are unlikely, though a Labor-led minority government formed in 2010 passed more legislation in its three years than its more stable predecessor. Whether Turnbull can do the same will depend on his ability to bridge the divides between camps with conflicting demands.

This dynamic will deter decisive action on such issues as cutting Australia's rapidly escalating public debt, which has swelled by 238 percent in the past 10 years. Standard and Poor's Global Ratings has already lowered the outlook on Australia's AAA rating from stable to negative, citing concerns that gridlock will prevent debt reduction. Even so, Australia's debt load is still fairly low by international standards, its government bonds hit record lows in June, and the country will continue to be seen as a haven amid the Brexit fallout.

The political uncertainty also clouds the future of free trade deals such as a recent trade pact with China or the U.S.-led Trans-Pacific Partnership (TPP). The TPP has yet to become a major flashpoint, and given Australia's geographic isolation, any government would have to recognize that access to global trade flows is crucial. Nonetheless, Australia has less than two years to ratify the pact, and the new government will be forced to spend a sizable chunk of this time delivering on the pledges it made to woo support for the new government. Meanwhile, it is unclear whether the groundswell of protectionist sentiment has peaked.

China Complications

Turnbull is famously sympathetic to China's ambitions, advocating that Australians should see the country's rise primarily in terms of the trade and investment opportunities it provides. At the same time, he has generally downplayed the threat that the country poses to, say, sea lanes in the South China Sea. At least twice during Turnbull's first six months in office, his government's priorities reflected this view.

For example, in awarding the submarine contract to France, the Turnbull administration demonstrated that it valued domestic political factors over U.S. or Japanese strategic considerations. (Washington favored the deal with Japan, which needed it to boost its nascent defense industry and whose submarines would have been more compatible with their U.S. counterparts.) Earlier, in October 2015, the Australian government reportedly caught Washington off guard when it granted a Chinese consortium with links to the People's Liberation Army a 99-year lease to operate a port in Darwin that regularly hosts U.S. forces.

Though these decisions put Turnbull somewhat at odds with Australia's foreign policy establishment, they represent a necessary strategic balance. Chinese demand for its commodities saw Australia through the 2011-12 financial crisis, and Chinese investment is vital going forward. Turnbull's administration has an obvious reason to try to shape the bilateral relationship around business.

Still, despite China's reliance on the principle of open sea lanes, its maritime assertiveness has not gone unnoticed. Most of the shipping from Northeast Asia to Australia bypasses the South China Sea. But Australia has a major interest in reinforcing freedom of navigation norms and deterring aggression in the region, and it is wary of Chinese activities in its backyard. Canberra, a U.S. treaty ally, will maintain its broad support for the U.S.-led security architecture in the Western Pacific.

Moreover, in leading a weaker government and a divided party, Turnbull will likely be more attuned to nationalist suspicion of the Chinese — and the possibly deleterious effects of their investments — among some anti-establishment forces. Far-right Queensland lawmaker Pauline Hanson, who once warned that Australia was in danger of being "swamped by Asians," is returning to the Senate for the first time in 18 years. And earlier this year, the Liberal Party's junior coalition partner, the National Party, thwarted a Chinese bid to purchase an Australian cattle giant — involving an area of land the size of Ireland — citing Australia's national interest.

Even here, Australia's fracturing political landscape could complicate the prime minister's preferred vision of business as usual.

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